Briefing of the
Canadian Economy:
March 2021
Elizabeth Mae Riese
1003016122
University of Toronto
ECO349 Winter 2021
Assignment 1
Briefing of the Canadian Economy
Elizabeth Riese 1003106122
1
Executive Summary
• COVID-19 still puts the certainty of economic recovery at risk, but so far it appears that the
Canadian Economy is slowly recovering
• The unemployment rate and long-term unemployment rate are starting to decline after their
peaks in January, but are still above typical values
• The Bank Rate will remain at 0.5% and the deposit rate will remain at 0.25% in an attempt
to get inflation rates to their target values
• The Bank of Canada’s security repos operations have increased liquidity in the financial
securities market
• Increased liquidity of bonds will increase demand for bonds and in turn their price, and
will also lower the interest rate
Introduction
This brief consists of three parts, and aims to compare updated data to that found in the Bank
of Canada’s January 2021 Monetary Policy Report. The first section, entitled ‘Current
Economic Conditions’, is comprised of charts and summaries of general economic indicators.
With the current global pandemic putting many economic activities to a standstill, the number
of global COVID-19 cases is also discussed in this section. Specific figures updated from
January 2021 can also be found in the ‘Figures’ section of this brief. The second section,
entitled ‘Latest Interest Rate Announcement’ summarizes the Bank of Canada’s press release
on the overnight rate. News articles published before this are discussed to analyse if markets
accurately predicted the interest rate chosen. The third and final section entitled ‘Recent
Developments’ analyses the effect of the Bank of Canada’s security repos operations on the
Canadian Economy and the Bond Market.
2
Current Economic Conditions
Chart 1: COVID-19 Decreases in Most Advanced and Emerging Economies
The introduction of vaccination programs across advanced economies over the past two months
has significantly lowered the daily cases per million people since the largest spikes in January
2021. There are slight spikes observed into March 2021, which may indicate another potential
wave of outbreaks brought about by the loosened restrictions in different countries. A similar
trend of decreasing cases is seen in emerging economies with only Brazil experiencing a sharp
increase in cases over March 2021. The number of new daily cases decreasing across countries
along with new certainty of vaccination rollouts suggests a new optimistic outlook for the
recuperation of the Canadian economy into the rest of 2021. Herd immunity not only in Canada
but for its trading partners is key in economic recovery. Predictions of how the economy will
fare this year are heavily dependent on the virus being contained via mass vaccination of the
public. The best case scenario would be that the vaccination process is successful over 2021 in
multiple countries around the world. Yet it is still possible that new virus strains may emerge,
which will once again delaying this process, such as a recent COVID-19 variant found in India.
1
1
BBC News Services. “Coronavirus: ‘Double Mutant’ Covid Variant Found in India.” BBC News, 25 Mar. 2021,
www.bbc.com/news/world-asia-india-56507988. Accessed 29 Mar. 2021.
Chart 1a - Advanced Economies
Chart 1b - Emerging-market economies
3
Chart 2: Equity Markets and the Canadian Dollar Appreciates Against the US dollar
Global equity prices rose in response to the successful development of vaccines which brought
several indexes up to record highs seen near the end of February. Since then there has been a
decline over March for the MSCI and SSE composite while S&P 500, STOXX 50 and
S&P/TSX composite continued to rise. The large rises in global indexes has been partly
attributed to an indirect consequence of so many people out of work. With new investing
applications such as Robinhood, trading at home becomes a convenient alternative for making
money when work is no longer available and the search for work poses real health risks
2
. (Chart
2b) The Canadian dollar appreciated by about 3 percent against the US dollar since January
2021. The CEER scales have both recovered to their January 2020 values and have continued
to rise past them into 2021. The CEER scale excluding the US rose from 121 to 126 from
January 1st to March 25th, which is another indication of the Canadian dollar appreciating
against the currencies of significant trading partners with Canada. This may be a detriment to
Canadian exporting firms, but beneficial to foreign firms exporting into Canada.
2
Domm, Patti. “How the Pandemic Drove Massive Stock Market Gains, and What Happens Next.” CNBC, 30 Dec. 2020,
www.cnbc.com/2020/12/30/how-the-pandemic-drove-massive-stock-market-gains-and-what-happens-next.html.
Note: CEER is the Canadian Effective Exchange Rate index.
4
The most recent figures on unemployment statistics in the United States are updated to
February 2021 since they are reported at the end of each month. The mentioned unemployment
figures are from the changes across January 2021 and February 2021 respectively, since these
are the most recent data since the publication of the January 2021 Monetary Policy Report. The
total unemployment rate decreased from 6.3% to 6.2%, and the long-term unemployment rate
as a percentage of total unemployment increased from 39.5% to 41.5%. Although some people
may be returning to work, most likely due to the effectiveness of vaccine rollouts, others may
be finding themselves out of work more permanently. This may be because certain businesses
are not able to find social distancing alternatives nor are able to survive temporary closure.
This trend is also seen in the total values of those unemployed. The total number of unemployed
people decreased from 10.13 million to 9.97 million, and the total number of long-term
unemployment increased from 4.00 million to 4.14 million. With the introduction of the
COVID-19 relief package in the United States, significant changes in this trend may occur in
the coming months.
Note: Long-term unemployed people are those who have been unemployed for 27 weeks or more. “Rest of
Unemployed People” is total unemployed people less those unemployed for 27 weeks or more.
5
Agricultural products and forestry products continue to rise in price from January to March.
The prices of base metals however began to decline in March. The Bank of Canada speculated
in the January 2021 Monetary Report two key reasons for the observed rise in oil price. The
first is due to vaccination rollouts allowing for travel, which could increase oil demand
necessary for said travel. The second is due to oil producing countries agreeing to cut back
production limited the supply. With recent news in late March of the blockage in Suez Canal,
it is reasonable to anticipate a further rise in oil prices towards the end of March and into early
April
3
. The canal is an essential trade route for the oil industry, so the supply of oil will be
limited further than what oil producing countries agreed on until the shipping container is
removed.
3
BBC News Services. “Egypt’s Suez Canal Blocked by Huge Container Ship.” BBC News, 24 Mar. 2021,
www.bbc.com/news/world-middle-east-56505413. Accessed 27 Mar. 2021.
6
The Bank of Canada January 2021 Monetary Policy Report includes data up to October 2020,
and the most recent data available from Statistics Canada is up to December 2020. Industries
heavily affected by social distancing measures still seem to be struggling, such as
‘accommodation, food, arts, entertainment and recreation’, and ‘transportation and
warehousing’. COVID-19 vaccinations have been introduced to Canada, but currently with
only a small fraction of the total population vaccinated it is unlikely that these sectors will
recover within the near future. Only once majority of the population is vaccinated such that
herd immunity is achieved will it be likely to see these industries recover to how they once
were at the start of 2020. The finance and education industries have roughly returned to the
levels they once were at the start of 2020. This is most likely because these industries have
online alternatives which allow for business to continue day-to-day such as online banking and
online classrooms. Wholistically, all industries are slowly returning to the levels they once
were in January 2020 which creates an optimistic outlook for 2021.
Note: The numbers in parenthese represent the estimated nominal shares of total GDP by industry.
7
The overall business lending conditions described in the Bank of Canada January 2021
Monetary Policy report is updated to the end of the third quarter of 2020. The data published
so far on the Bank of Canada website is updated to the end last quarter of 2020, or equivalently
up to the start of first quarter of 2021. The business non-price lending conditions decreased
from -2.3% to -3.0%, and the business price lending conditions also decreased from 16.9% to
-3.1%. This easing over the final quarter of 2020 indicates that the growth rate of business
investment, total business credit and business credit provided by banks over the first quarter of
2021 are expected to increase.
4
Although there are considerable fluctuations in the business
lending conditions, compared to that of the 2008/2009 financial crises, conditions still are not
so unfavourable.
4
Bank of Canada. The Bank of Canada’s Senior Loan Officer Survey.
Note: Balance of opinion means the percentage of respondents reporting tightening business lending conditions minus those
reporting easing business lending conditions. Last observation: 2020Q4
8
Both total unemployment rate and long-term unemployment rate peaked in January 2021, but
is seen to decrease into February 2021. The total unemployment rate was 9.4% , and decreased
to 8.2% respectively. In total values this is equivalent to 1.9 million of the rest of unemployed
people excluding those long-term employed decreasing to 1.7 million. The long-term
unemployment rate was 2.5% in January then decrease to 2.3% in February, and the number
of people experiencing long-term unemployment decreased from 511,500 to 462,100. These
levels of unemployment overall are very high even when compared to the spike observed
during the 2008 financial crisis. However, slowly the values are decreasing which may be due
to the widespread vaccination allowing people to get back to work.
Note: Long-term unemployed people are those who have been unemployed for 27 weeks or more. “Rest of Unemployed
People” includes those for whom the duration of unemployment is unknown. Last observation: February 2021
9
It again appears that the accommodation, food services, culture and recreation industries are
hit the hardest with approximately 214 thousand people leaving these services altogether. As
many businesses in this industry were forced to shut down temporarily or permanently since
the pandemic. Financial and professional services saw the largest increase with 126 thousand
people entering this industry. This could be because these industries do not require as much
face-to-face interaction but rather highly skill expertise which can often be conducted online.
The second largest increase was in the education, health and public administration industries.
This makes sense considering public health organizations have been strained over 2020 trying
to manage the COVID-19 global pandemic.
10
Measures of core inflation still remain under 2% since the most recent data published in the
January Monetary Policy Report. The total CPI increased from 1.0% to 1.1% from November
to February with a significant dip to 0.7% in December. The adjusted price index is only
updated to November so there is some missing data. Statistics Canada plans to release the most
updated data for December 2020, January 2021 and February 2021 on April 12th, 2021.
5
The
adjusted price index follows a similar trend line to that of the total CPI but is lower than total
CPI. It appears that to get inflation at the target level the total CPI should ideally continue to
increase as it has done so far. The January Monetary Policy Report mentioned that relatively
higher gasoline prices to that of the previous year should significantly boost inflation. With the
unexpected shortage of oil mentioned in the Chart 4 explanation, it may be that the prices will
end up being higher than originally anticipated. As a consequence CPI inflation over the
coming year may occur faster.
5
Statistics Canada, Government of Canada. “Consumer Price Index Portal.” Www.statcan.gc.ca, 28 May 2019,
www.statcan.gc.ca/eng/subjects-start/prices_and_price_indexes/consumer_price_indexes.
Note: The Bank of Canada and Statistics Canada recently developed an adjusted price index, which updated weights from March
2020 to November 2020 based on high-frequency expenditure data. Last Observation of other data is February 2021.
* The measures are CPI-common, CPI-median and CPI-trim.
11
Latest Interest Rate Announcement
The Bank of Canada intends to keep the interest rate the same until the target rate of 2%
inflation is reached. The Bank Rate will remain at 0.5% and the deposit rate will remain at
0.25%. It was acknowledged that the economy was recovering better than initially anticipated
with GDP growth at 9.6% in the final quarter of 2020. It was also emphasized that the bank
intends to remain cautious since the true end of the pandemic is still highly uncertain.
This decision seemed to be accurately anticipated by markets, most likely because the
bank did state these intentions earlier in the year. Articles by the ‘Globe and Mail’
6
and the
‘Financial Post’
7
mentioned that the Bank of Canada disclosed the intention to keep interest
rates the same until 2023. Both articles overall have similar arguments based off of similar
evidence which led them to similar conclusions. With the economic indicators improving since
January 2021, this would usually follow with interest rate and inflation rate hikes given that
they were much lower than what is ideal. That being said, the situation with COVID-19 is still
so unpredictable. The articles suggested that the Bank of Canada was most likely not going to
change the interest rate as it announced earlier, at least until things are more certain and the
Canadian economy has unequivocally recovered. Both seem to trust in the patience of Bank of
Canada to keep the rate where it is currently at in order to control inflation above all else which
is the main purpose of the organization.
One distinct point between the two articles was made by the Globe and Mail. It
suggested that some ambitious markets may speculate at possible higher inflation and higher
interest rates in 2022, i.e. one year earlier. It also articulated how this would definitely be much
6
Rendell, Mark. “As Economy Heats Up, Bank of Canada Walks a Messaging Tightrope.” The Globe and Mail, 8 Mar.
2021, www.theglobeandmail.com/business/article-as-economy-heats-up-downbeat-bank-of-canada-walks-a-
messaging/. Accessed 30 Mar. 2021.
7
Smith, Fergel. “Bank of Canada Expected to Resist Investor Expectations of Early Rate Hike.” Financial Post, 8 Mar.
2021, financialpost.com/pmn/business-pmn/bank-of-canada-expected-to-resist-investor-expectations-of-early-rate-
hike-2. Accessed 30 Mar. 2021.
12
too optimistic given the uncertainty of the global pandemic situation. It was also suggested that
there may be some parties frustrated by the low interest rate. They briefly mention the housing
market and how inflation may rise past 3%. These points seems brief because there is not much
justification for them being large issues. The interest rate is only a small part of the housing
market issues in Canada at the moment
8
, and given the pandemic circumstances a high inflation
rate for a short period might be necessary for the certainty that the economy has truly recovered
from the COVID-19 recession. Overall it seems that the markets were quite clear on predicting
the interest rates that the Bank of Canada intended.
Recent Developments
The Bank of Canada is increasing the maximum total bidding amount across all securities in
the SRO to $2,000 million for each eligible participant as of March 15th 2021. This in turn will
increase the liquidity of the securities financing market. As a consequence bonds will become
relatively more liquid compared to other assets. Assuming all else equal, i.e. wealth of
individuals, expected interest rate, expected inflation, riskiness of bonds relative to other assets,
profitability of investment, government deficit; all stays the same, it is expected that the
demand for bonds would increase. An increase in the demand for bonds would in turn lead to
a rise in the price of bonds but lower the interest rate. It is unlikely that every single one of
those market variables would remain the same realistically. Yet. the effect of demanding
increasing is still there, most likely in conjunction with other shifting variables happening
simultaneously. For example, the Canadian economy is still recovering from the immediate
recession brought about by COVID-19, and the same model would infer that the decrease in
wealth would decreased the demand for bonds. This may not completely reverse the effects the
increase in bond liquidity depending on the magnitude of the effect.
8
Pittis, Don. “Tiff Macklem Warns Buyers Not to Expect Current House Price Increases to Continue | CBC News.” CBC, 21
Feb. 2021, www.cbc.ca/news/business/bank-canada-overheating-housing-market-1.5925073.
Briefing of the Canadian Economy
Elizabeth Riese 1003106122
13
References
Bank of Canada. The Bank of Canada’s Senior Loan Officer Survey. , July 2011.
BBC News Services. “Coronavirus: ‘Double Mutant’ Covid Variant Found in India.” BBC
News, 25 Mar. 2021, www.bbc.com/news/world-asia-india-56507988. Accessed 29
Mar. 2021.
---. “Egypt’s Suez Canal Blocked by Huge Container Ship.” BBC News, 24 Mar. 2021,
www.bbc.com/news/world-middle-east-56505413. Accessed 27 Mar. 2021.
Domm, Patti. “How the Pandemic Drove Massive Stock Market Gains, and What Happens
Next.” CNBC, 30 Dec. 2020, www.cnbc.com/2020/12/30/how-the-pandemic-drove-
massive-stock-market-gains-and-what-happens-next.html.
Pittis, Don. “Tiff Macklem Warns Buyers Not to Expect Current House Price Increases to
Continue | CBC News.” CBC, 21 Feb. 2021, www.cbc.ca/news/business/bank-
canada-overheating-housing-market-1.5925073.
Rendell, Mark. “As Economy Heats Up, Bank of Canada Walks a Messaging Tightrope.” The
Globe and Mail, 8 Mar. 2021, www.theglobeandmail.com/business/article-as-
economy-heats-up-downbeat-bank-of-canada-walks-a-messaging/. Accessed 30
Mar. 2021.
Smith, Fergel. “Bank of Canada Expected to Resist Investor Expectations of Early Rate
Hike.” Financial Post, 8 Mar. 2021, financialpost.com/pmn/business-pmn/bank-of-
canada-expected-to-resist-investor-expectations-of-early-rate-hike-2. Accessed 30
Mar. 2021.
Statistics Canada, Government of Canada. “Consumer Price Index
Portal.” Www.statcan.gc.ca, 28 May 2019, www.statcan.gc.ca/eng/subjects-
start/prices_and_price_indexes/consumer_price_indexes.
Briefing of the Canadian Economy
Elizabeth Riese 1003106122
14
Figures
Chart Title
Updated Figures from Bank of Canada January 2021
Monetary Policy Report
Chart 1: COVID-19 Decreases
in Most Advanced and Emerging
Economies
(Mar 22nd 2021 in cases per
million)
EU: 340.17
US: 162.21
Canada: 96.57
UK: 81.57
Japan: 10.28
China: 0.01
Russia: 63.06
South Africa: 18.09
Mexico: 36.89
India: 32.39
Brazil: 353.63
Chart 2: Equity Markets and the
Canadian Dollar Appreciates
Against the US dollar (Index:
Jan 3rd 2020 = 100,
Chart 2a Mar 23rd 2021,
Chart 2b Mar 25th 2021)
United States - S&P 500: 121
Canada - S&P/TSX composite:
109
Euro area - STOXX 50: 101
Emerging Markets – MSCI: 118
China - SSE composite: 111
CEER: 122.12
CEER Excluding United
States: 125.82
Canada - United States
Exchange Rate: 0.7933
Chart 3: Long-Term
Unemployment in the United
States (Jan 2021, Feb 2021)
Total Unemployment Rate: 6.3, 6.2
Long-Term Unemployment Rate: 2.5, 2.6
Total Unemployed People (millions): 10.1, 10.0
Long-Term Unemployed People (millions): 4.0, 4.1
Chart 4: Commodity Prices
Continue to Rise as Prospects
for Global Growth Have
Improved (Index: Jan 1st 2020 =
100, 17th Mar 2021,)
Base Metals: 112
Energy: Oil, Coal, Natural Gas: 119.4
Agricultural Products: 124
Forestry Products: 179
15
Chart 5: Hardest-hit Sectors
Continue to Struggle at End of
2020
(Index: January 2020 = 100
Nov 2020, Dec 2020)
Accommodation, food, arts, etc: 61, 57
Transportation and warehousing: 81, 81
Mining, quarrying, and oil and gas extraction: 90, 93
Education, health care and social assistance: 97, 98
Finance, insurance, real estate, etc: 103, 103
Other Industries: 99, 99
All industries: 97, 97
Chart 6: Business Lending
Conditions (2020Q4)
Business Non-Price Lending Conditions: -3.00
Business Price Lending Conditions: -3.05
Chart 7: Long-term
Unemployment is Increasing in
Canada (January 2021, February
2021)
Total Unemployment Rate: 9.4, 8.2
Long-Term Unemployment Rate: 2.5, 2.3
Total Unemployed People (millions): 1.9, 1.7
Long-Term Unemployed People (millions): 5.1, 4.6
Chart 8: Impacts on
Employment Remain Uneven -
Change in Employment Between
September 2020 and February
2021
Financial and Professional Services: 126
Wholesale and Retail Trade: 25
Education, Health and Public Administration: 106
Manufacturing, Transportation and Warehousing: 29
Construction: 77
Agriculture, Natural Resources and Utilities: 10
Other Services (Including Business Services): -16
Information, Culture and Recreation: -77
Accommodation and Food Services: -137
16
Chart 9: CPI Inflation and Core
Inflation Measures Remain
Below Target* (Dec 2020, Jan
2021, Feb 2021)
Total CPI: 0.7, 1.0, 1.1
Adjusted Price CPI: no updated data available
CPI-common: 1.3, 1.3, 1.3
CPI-median: 1.9, 2.0, 2.0
CPI-trim: 1.8, 1.9, 1.9
* Note: Range of core inflation is max/min values of CPI-common, CPI-median, CPI-trim
values for each time frame.
Briefing of the Canadian Economy
Elizabeth Riese 1003106122
17
Appendix
Dataset Name
Dataset Webpage Link
First and Last
Data
Observation
Used
Our World in
Data COVID-19
dataset.
https://ourworldindata.org/covid-cases
January 28th
2020 – March
22nd 2021
SPX Historical Data
https://www.nasdaq.com/market-
activity/index/spx/historical
January 3rd 2020
– March 23rd
2021
TSX Historical Data
https://www.nasdaq.com/market-
activity/index/tsx/historical
January 3rd 2020
– March 23rd
2021
EURO STOXX 50 Index
https://www.wsj.com/market-
data/quotes/index/XX/SX5E/historical-prices
January 3rd 2020
– March 23rd
2021
MSCI Emerging Markets
Index USD
https://www.wsj.com/market-
data/quotes/index/XX/891800/historical-prices
January 3rd 2020
– March 23rd
2021
Shanghai Composite
Index
https://www.wsj.com/market-
data/quotes/index/CN/SHCOMP/historical-prices
January 3rd 2020
– March 23rd
2021
Currency Converter
Canadian Dollar US
Dollar
https://www.bankofcanada.ca/rates/exchange/currenc
y-
converter/?lookupPage=lookup_currency_converter_
2017.php&startRange=2011-03-
26&rangeType=range&selectToFrom=to&convert=1
.00&seriesFrom=Canadian+dollar&seriesTo%5B%5
D=FXUSDCAD&rangeValue=&dFrom=2020-01-
01&dTo=2021-03-26&submit_button=Convert
January 1st 2020
– March 25th
2021
18
Canadian Effective
Exchange Rate
https://www.bankofcanada.ca/rates/exchange/canadia
n-effective-exchange-rates/
January 1st 2020
– March 25th
2021
Civilian unemployment
rate, seasonally
adjusted
https://www.bls.gov/charts/employment-
situation/civilian-unemployment-rate.htm
February 2001 –
February 2021
Bank of Canada
Commodity Price Index
https://www.bankofcanada.ca/rates/price-
indexes/bcpi/#data
January 1st 2020
– March 17th
2021
Gross domestic product
(GDP) at basic prices,
by industry, monthly (x
1,000,000)
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid
=3610043401&pickMembers%5B0%5D=2.1&pickM
embers%5B1%5D=3.1&cubeTimeFrame.startMonth
=01&cubeTimeFrame.startYear=2020&cubeTimeFra
me.endMonth=12&cubeTimeFrame.endYear=2020&
referencePeriods=20200101%2C20201201
January 2020 –
December 2020
Senior Loan Officer
Survey
https://www.bankofcanada.ca/publications/slos/
January 1st 2006
– October 1st
2020
Labour force
characteristics,
monthly, seasonally
adjusted and trend-
cycle, last 5 months
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid
=1410028701
January 2000 –
February 2021
Duration of
unemployment,
monthly, seasonally
adjusted
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid
=1410034201&pickMembers%5B0%5D=1.1&pickM
embers%5B1%5D=3.1&pickMembers%5B2%5D=4.
1&pickMembers%5B3%5D=5.1&cubeTimeFrame.st
artMonth=01&cubeTimeFrame.startYear=2000&cub
eTimeFrame.endMonth=02&cubeTimeFrame.endYe
ar=2021&referencePeriods=20000101%2C20210201
January 2000 –
February 2021
Employment by
industry, monthly,
seasonally adjusted and
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid
=1410035501&pickMembers%5B0%5D=1.1&pickM
embers%5B1%5D=3.1&pickMembers%5B2%5D=4.
September 2020
– February 2021
19
unadjusted, and trend-
cycle, last 5 months (x
1,000)
1&cubeTimeFrame.startMonth=09&cubeTimeFrame
.startYear=2020&cubeTimeFrame.endMonth=02&cu
beTimeFrame.endYear=2021&referencePeriods=202
00901%2C20210201
Consumer Price Index,
2000 to Present
https://www.bankofcanada.ca/rates/price-indexes/cpi/
January 1st 2018
– February 1st
2021
Monthly adjusted price
index, provisional
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid
=1810026301&cubeTimeFrame.startMonth=03&cub
eTimeFrame.startYear=2020&cubeTimeFrame.endM
onth=12&cubeTimeFrame.endYear=2020&reference
Periods=20200301%2C20201201
March 2020 –
November 2020